Net Asset Value, Corporate Update & Dividend

29 October 2024

Target Healthcare REIT plc and its subsidiaries

("Target Healthcare" or "the Group")

Net Asset Value, update on corporate activity and dividend declaration

Target Healthcare (LSE: THRL), the UK listed specialist investor in modern, purpose-built care homes, announces its unaudited quarterly Net Asset Value ('NAV') as at 30 September 2024, an update on corporate activity and its first interim dividend for the year ending 30 June 2025.

Corporate activity highlights

Focus on quality real estate reflected in growing dividend and sustained EPRA NTA growth, underpinned by structural demographic tailwinds:

·      EPRA Net Tangible Assets ('NTA') per share increased 0.9% to 111.7 pence (30 June 2024: 110.7 pence), reflecting a like-for-like valuation uplift driven by the portfolio's inflation-linked rent reviews

·      EPRA "topped-up" net initial yield stable at 6.20% (30 June 2024: 6.20%) based on an annualised contractual rent of £59.2 million

·     Adjusted EPRA EPS for the quarter of 1.55 pence per share, fully covering the dividend of 1.471 pence per share which is to be paid in respect of the quarter 

·      NAV total return of 2.2% for the quarter (based on EPRA NTA and including dividend payment)

·      Net LTV of 22.8% (30 June 2024: 22.5%)

·     Weighted average debt term of 5.0 years (30 June 2024: 5.2 years). Interest costs hedged on 93% of drawn debt to the relevant facility maturity date with a weighted average cost of drawn debt of 3.96% (inclusive of amortisation of arrangement costs)

·     Total capital available of £85 million as at 30 September 2024, net of the Group's capital commitments including two development assets

·      ESG credentials supported by an improved GRESB score of 71, placing the Group second in its peer group

Sector-appropriate business model delivering consistent performance: Diversified tenant base; highly engaged management; modern real estate with strong environmental credentials. Underlying portfolio trading continues to support long-term returns with 1.9x last twelve months rent cover:

·      Diversified portfolio of 94 assets let to 34 tenants and valued at £916.4 million (30 June 2024: £908.5 million) reflecting an increase of 0.9%. Like-for-like valuation increased by 0.6%, primarily driven by continued rental growth

·      Like-for-like contracted rent increased 0.6%, driven by inflation-linked upwards-only annual rent reviews

·      WAULT of 26.2 years (30 June 2024: 26.4 years)

·      High quality, modern and sustainable real estate portfolio:

o  99% of the portfolio is A or B EPC rated, (100% A to C ratings) and therefore compliant with the minimum energy efficiency standards anticipated to apply from 2030

o  Positive social impact from sector-leading real estate standards: 99% en suite wet-rooms; generous 48 sqm space per resident; sustainable rent of £196 per sqm

·      Rent cover on mature homes was stable, at 2.0x for the June 2024 quarter (most recent quarter of tenant data)

Kenneth MacKenzie, CEO of Target Fund Managers, commented:

"The Manager is deeply involved with care providers, developers and industry bodies and is committed to a better future for the sector. We recently hosted an event for our tenants, learning more about their growth aspirations and their current operational environments, and a round table with key leaders within the older adult care sector focussed on the role of the regulator. There was an encouraging consensus on a positive outlook and the growth opportunity where care is provided well, in addition to the importance and benefits of quality, whether through real estate, services, people or regulation.

"With 67% of UK care home beds unfit-for-purpose in a sector which generates over £20bn per annum in resident fees, we anticipate no deceleration in the pace of change of real estate standards as residents and their families become less willing to accept places without fully private personal hygiene space, adequate social & outdoor space, and with sub-standard environmental certification. Our strategy of holding exclusively modern, purpose-built real estate positions us firmly on the right side of the increasing sector bifurcation, with a best-in-class platform that will enable us to grow the portfolio in a disciplined manner, and deliver compelling investment returns."

EPRA NTA

The Group's unaudited EPRA NTA per share as at 30 September 2024 was 111.7 pence and NAV total return for the quarter was 2.2%.

A balance sheet summary and an analysis of the movement in the EPRA NTA over the quarter is shown in the Appendix of this announcement.

Corporate Update

Portfolio performance

As at 30 September 2024, the Group's portfolio was valued at £916.4 million and comprised 94 properties, consisting of 92 operational care homes and two pre-let sites, which are being developed through capped forward funding commitments with established development partners.

The portfolio value increased by 0.9% over the quarter, comprising:

·      a 0.6% like-for-like increase in the operational portfolio, predominantly from inflation-linked rent reviews; and

·      a 0.3% increase from capital expenditure, primarily associated with the two development properties

Contractual rental income increased by 0.7% over the quarter, comprising:

·      a 0.6% like-for-like increase from 18 inflation-linked upwards-only rent reviews, with an average uplift of 3.0%; and

·      a 0.1% increase from the rentalisation of capital expenditure incurred, including the installation of photovoltaic ("PV") panels

The EPRA "topped-up" net initial yield was 6.20% based on an annualised contractual rent of £59.2 million and the EPRA net initial yield was 6.15% with one asset in a rent-free period.

Portfolio update

During the quarter, the following asset management initiatives were undertaken:

·      The Group facilitated the installation of PV panels at four homes, with the capital expenditure funded by the Group and rentalised at a yield ahead of the portfolio EPRA topped-up NIY.

·     Following the completion of the refurbishment of one of the Group's homes in the North West, capital expenditure of £0.4 million was similarly rentalised.

·      The conversion of the final four rooms to provide full en suite wet-room facilities at one of the Group's homes in North Yorkshire completed as part of ongoing asset enhancements, increasing the portfolio towards 100% en suite wet-rooms.

GRESB score

The Group has continued its participation in the benchmark, receiving an improved score of 71 for the year to December 2023, compared to a peer group average of 65. This placed the Group second amongst its peer group and seventh in the "Healthcare-listed" segment.

GRESB (Global Real Estate Sustainability Benchmark) is an independent real estate benchmark that assesses the sustainability policy of real estate companies.

Debt facilities and swap arrangements

As at 30 September 2024, the Group's total borrowings were £248 million, representing a net LTV of 22.8% (total gross debt less cash, as a proportion of gross property value). The Group's weighted average cost on its drawn debt, inclusive of amortisation of loan arrangement costs, was 3.96% (30 June 2024: 3.91%).

93% of drawn debt is fully hedged:

·    £150 million is fixed with a weighted average term of 9.4 years and a weighted average interest rate of 3.18% (excluding the amortisation of arrangement fees)

·      £30 million of the Group's bank facilities is fixed at 2.48% for 1.1 years through an interest rate swap

·      £50 million of the Group's drawn revolving credit facilities have interest rates capped at 5.17% via a 3% SONIA cap for 1.1 years

·      The remaining £18 million of the Group's drawn revolving credit facilities carries a variable interest rate of SONIA plus a margin of 2.18%

The Group has access to a further £72 million of committed, but undrawn, revolving credit facilities which, if drawn, would carry an interest rate of SONIA plus 2.21%. During the quarter, the Group drew down £5 million to fund construction of the Group's development assets, with £7 million of such commitments remaining on a cash basis. The Group has also retained £23 million from recent property disposals as cash in the short term which it intends to use to reduce its variable rate debt further and to fund the completion of the two remaining development assets.

As at 30 September 2024, the weighted average term to expiry on the Group's total committed loan facilities was 5.0 years (30 June 2024: 5.2 years) with the earliest maturity in November 2025. In relation to the Group's shortest dated debt facilities, indicative refinance terms have been obtained from a number of lenders for a range of facility types and durations. The Group is pleased with the potential lender appetite and is carefully evaluating the available options.

Dividends

The Group paid its fourth interim dividend for the year ending 30 June 2024, in respect of the period from 1 April 2024 to 30 June 2024, of 1.428 pence per share, on 30 August 2024 to shareholders on the register on 16 August 2024. This distribution was comprised wholly of a property income distribution (PID).

Announcement of first interim dividend

The Company today declares its first interim dividend for the year ending 30 June 2025, in respect of the period from 1 July 2024 to 30 September 2024, of 1.471 pence per share as detailed in the schedule below:

Interim Property Income Distribution (PID):     1.471 pence per share

Interim ordinary dividend:                                  nil

The quarterly dividend reflects an annualised dividend of 5.884 pence per share and a dividend yield of 6.6% based on the 28 October 2024 closing share price of 89.8 pence.

The Company had 620,237,346 ordinary shares in issue at 30 September 2024 and has not issued or bought back any shares since that date.

Shareholders entitled to elect to receive distributions without deduction for withholding tax may complete the declaration form which is available on request from the Company through the contact details provided on its website www.targethealthcarereit.co.uk, or from the Company's registrar. Shareholders who qualify for gross payments are, principally, UK resident companies, certain UK public bodies, UK charities, UK pension schemes and the managers of ISAs, PEPs and Child Trust Funds, in each case subject to certain conditions. Individuals and non-UK residents do not qualify for gross payments of distributions and should not complete the declaration form.

LEI: 213800RXPY9WULUSBC04

ENDS

Enquiries:

Notes to editors:

UK listed Target Healthcare REIT plc (THRL) is an externally managed Real Estate Investment Trust which provides shareholders with an attractive level of income, together with the potential for capital and income growth, from investing in a diversified portfolio of modern, purpose-built care homes.

The Group's portfolio at 30 September 2024 comprised 94 assets let to 34 tenants with a total value of £916.4 million.

The Group invests in modern, purpose-built care homes that are let to high quality tenants who demonstrate strong operational capabilities and a strong care ethos. The Group builds collaborative, supportive relationships with each of its tenants as it believes working in this way helps raise standards of care and helps its tenants build sustainable businesses. In turn, that helps the Group deliver stable returns to its investors.

Important information

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the UK version of the Market Abuse Regulations (EU) No. 596/2014, which is part of UK law by virtue of the European Union (Withdrawal) Act 2018, as amended. Upon the publication of this announcement via Regulatory Information Service, this inside information is now considered to be in the public domain.

APPENDIX

1.     Analysis of movement in EPRA NTA

The following table provides an analysis of the movement in the unaudited EPRA NTA per share for the period from 1 July 2024 to 30 September 2024:

The EPRA Best Practices Recommendations Guidelines state that companies should publish a set of three NAV metrics. The full set of EPRA NAV metrics are published in the Group's Annual Report. The Company intends to continue to announce the EPRA NTA on a quarterly basis.

At 30 September 2024, due to the valuation ascribed to the Group's interest rate derivative contracts used to hedge its exposure to variable interest rates, which are excluded from the calculation of the EPRA NTA, the unaudited NAV calculated under International Financial Reporting Standards was 112.0 pence per share.

^Consistent with standard valuation practice for assets under construction, the carrying value of these assets is calculated by the valuer through application of a discount to accumulated costs to date. This discount varies depending on factors such as the remaining development time. As the asset progresses towards completion, the discount that has been applied is unwound.

*Properties within the portfolio are stated at the market value provided by the external valuer and the IFRS effects of fixed/guaranteed minimum rent reviews are not reflected.

3.     External Valuer

The valuation of the property portfolio as at 30 September 2024 was conducted by CBRE Limited.

The next quarterly valuation of the property portfolio will be conducted by CBRE Limited during January 2025 and the unaudited EPRA NTA per share as at 31 December 2024 is expected to be announced thereafter.

4.     EPRA NIY profiles and unwind of rent-free period

The Group currently has one asset with a rent-free period. As this unwinds, assuming no other changes including inter alia the portfolio valuation or rental profile, the EPRA yield profiles for the portfolio will be as follows: